Is Arm Holdings Still a Hidden Winner of the AI Chip Race?

Arm Holdings (NASDAQ: ARM) is a vital component of the artificial intelligence (AI) landscape, yet its potential as a leading AI investment is often overlooked amidst the hype surrounding Nvidia and AMD's pricey AI accelerators. Unlike these firms, Arm doesn't manufacture chips for training large language models; instead, it designs foundational instruction sets and CPU cores, licensing them to fab partners for a royalty on each shipped unit. This positions Arm as a toll booth on a rapidly expanding road.

Historically, Arm's toll road primarily served the smartphone industry. However, it now extends into the data center sector as well. Nvidia's Vera CPU integrates Arm cores with its accelerators, while Amazon's Graviton, Microsoft's Cobalt, and Alphabet's Google Axion are all Arm-based, manufactured in-house by companies investing heavily in server capacity.